Are people settling for second best ?
The quote from the Defaqto report was quite an eye opener. Whilst it is no longer compulsory to use your pension pot to purchase an annuity ( the product that provides you with pension income ) I can't believe that only 1 in 10 people who are entitled to an enhanced annuity are taking up this option.
The amount of income provided by an annuity is calculated by actuaries based on how much an individual has to spend, their age, life expectancy and other factors such as prevailing interest rates and gilt yields. When some-one's life expectancy is shortened because they have a health issues, it is possible to get an enhanced annuity which provides a higher income. It's a way of paying more over a shorter period, when someone has a health issue which statistically can reduce their life expectancy.
Now it seems plainly immoral to me that pension companies who have been holding these pots of money for their policy holders, may not be forthcoming with all the options available for those retiring in ill health and that is perhaps why so few enhanced annuities are taken up.
Perhaps these same companies are also not forthcoming with the fact that on retirement, there may exist an "open market option" for their pension pot, meaning that the policy holder is under no obligation to buy an annuity from the pension company. They can indeed take advantage of the services of an independent financial adviser and look at all the annuity providers in the market and find out who is offering the best terms. An option that, according to the Defaqto report, 2 in 3 people are not doing.
One way a pensions company, life office or specialist annuity provider, can attract an in-flow of new money is to offer competitive annuity rates. Don't settle for second best or be lazy when it comes to maximising your income in retirement. If you've got the Open Market Option, you have nothing to lose by taking a look at the whole of the market.
